Macau Gaming - 7th straight month of growth to 2-year high in Feb

In February, Macau gaming revenue rose to 23bn patacas (US2.9bn), from 19.5bn patacas a year ago and is the highest since January 2015 according to Gaming Inspection and Coordination Bureau Macau. Two new casinos are expected to open in 2017; “The 13” 200 ultra- luxurious rooms costing USD1.0bn and MGM Cotai 1,600 room costing USD2.5bn.

Revenue of junket operator jumped 20%

According to the president of Association of Gaming & Entertainment Promoters of Macau – revenue for the biggest junket operators rose more than 20% from 3Q YoY. The previous downturn from 2014 has halved the junket operators and the larger junket operators have boosted liquidity in recent months due to the consolidation, providing money to high rollers.

Gaming to support Macau GDP growth in 2017:Fitch

Fitch Ratings Inc said it expects Macau’s GDP to grow by 2.5% in 2017, supported by gaming revenues from new casino openings. Macau’s economy is expected to bounce back after 3 years of negative GDP growth. Gaming accounts for half of Macau’s GDP.

Macau Gaming Industry Snapshot

• Based on our preliminary observation as per data collected on table 1 in the appendix, there are currently six well-known players in the Macau Gaming sector; (WYNN, GALAXY, MGM, SANDS, MELCO, SJM).
• Consensus is forecasting the Macau listed gaming players to record -4.27%/+2.4% NP growth for FY17E/FY18E.
• The average PER/Fwd. PER of Macau gaming listed players are 22.0x/21.1x.
• Industry FY17E dividend yield averages out to c.1.6%.

Looking on the surface…

• Across the board, WYNN showcased the strongest consensus Net Profit growth of (-7.77%/+48.15% for FY17E/FY18E) on top of FY17E dividend yield of 2.71%.
• Meanwhile, MGM offers a combination of cheap valuation (16.7x Fwd. PER vs industry average of 21.1x) and improved earnings growth of -22.81%/+39.55%) for FY17E/FY18E.
• Dividend yield wise for FY17E, WYNN provides the highest dividend at 2.71% followed by SJM at 2.55%.

So what can we do?

For investors who want to ride the recovery in the Macau Gaming sector, MGM appears to be attractive at 16.7x Fwd. PER and dividend yield of 1.46% supported by the opening of a brand-new MGM Cotai Casino USD3.1bn in 2Q17.

From a technical perspective, …

MGM has staged a technical breakout from its multi-month downtrend resistance-turned-support line. Nonetheless, MGM is currently trapped between its key SMAs, hovering tightly in tandem with the trend lines. Besides, its flattish momentum indicators (MACD, RSI and Stochastic) are suggesting that the stock could undergo a sideways consolidation play in the immediate term. Should MGM manage to take out its immediate level of HKD14.92 (R1), it could set sights at HKD16.38 (R2) and possibly HKD17.62 (R3) in the near to medium-term. On the flip side, failure to take out the R1 level convincingly would see the stock consolidate further, with downside support at HKD13.60 (S1)/HKD12.78 (S2)/HKD11.00 (S3).

Source: Kenanga Research - 06 Mar 2017